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Remittance revolution (Bangkok Post)

When Jesehl Basco pitches the idea of using the digital currency Bitcoin to make payments, he is usually greeted with resistance and headaches.

“Clients are skeptical with this new technology,” he says. “It takes a lot of time and effort to explain to them what it is and its benefits, especially during the early years of Bitcoin.

“But it is worth it.”

That worth is the easiest part of Bitcoin to explain. Basco’s company iContent Media, which provides content writing services to mostly foreign clients, gets charged high rates when using PayPal’s online money transfer system, plus the exchange rate used is “way too far” off from market rates, Basco laments. But with Bitcoin, iContent Media has been able to collapse costs completely. “There is almost a nil remittance fee and the exchange rate is based on the international rate,” says Basco. “And what’s more? Transactions are completed in a few minutes.”

Bitcoin is best known in its incarnation as a crypto-currency, inherent to high levels of risk due to its virtual nature of possession. Indeed, if you have bought any Bitcoins in the past 18 months, this risky nature is very real – the digital currency has seen considerable losses.

However, when utilized as a remittance, the risk becomes manageable.

Six years after its creation, this world of blockchain exchanges remains arcane to most except for select circles of financiers, techno-geeks and early adopters. And that’s OK. Because, as it turns out, the ideal usage of Bitcoin may not be in the form of an asset, but rather as a remittance tool used to transfer value, like a commodity trader, which carries no risk for the sender.

Satochi Citadel Industries (SCI), a Bitcoin company in the Philippines, has capitalized on such alternative uses to the technology. “There is a greater emphasis now on Bitcoin as a remittance tool,” says John Bailon, Co-founder and CEO of SCI. And, in these transactions, “both the sender and the receiver don’t even have to know that they’re using Bitcoin.”

In the Philippines, where 10 percent of the country’s GDP comes from remittances sent by overseas Filipino workers (OFW), this $28 billion industry could be rocked by the disruptive power of such a technology.

Seeing the revolution at hand, the Bangko Sentral ng Philipinas (BSP) has invited SCI to advise them on how to manage Bitcoin transactions. “They’re approaching it carefully but very positively,” says Bailon. “Our government is open and friendly to disruptive technology.”

This is a fortunate disposition for the government to have, because the success of SCI’s remittance services will prove earth shattering for money transfer providers like Western Union; SCI even has a similar inception story.

“Western Union actually started out as a group of companies in different territories that decided to create a union to allow remittances to flow through them, hence the name Western Union,” Bailon told the Bangkok Post in an email interview.

“What we’re building now is similar in a sense: We’re leading a new business model that allows any company to connect to similar companies and allow money transfers to flow freely via the Bitcoin network. We jokingly call this movement the Eastern Union.”

That Bitcoin’s network is decentralized – an open technology allowing anyone to connect into it – creates even further alterative use-cases, such as land title registration, marriage contracts, and even personal identification. But the remittance market offers a tide capable of floating the technology into global relevancy – and its no small slice of pie. Global remittances were worth a total of $582 billion in 2014, according to the World Bank, and most of these money transfers occur from developed countries, where overseas workers earn a living and send home, usually to a developing country.

In order to truly compete with a global giant such as Western Union, physical spaces are needed to create the points of transfers, either by building them from scratch or acquiring partners that will tap a network of agents.

In this ambition, SCI found BitSpark, a Hong Kong-based Bitcoin company that acts as a partner on one side of their Hong Kong-Philippine remittance corridor. To the layman, the entire process is marketed just like any other transaction, except, behind the scenes, the complex mechanics of digital currency trading is taking place.

BitSpark generally hires agents from a large network shared by Western Union, but entices them onto their software by offering a significant discount in fees. “They [agents] pay Western Union an 80 percent commission on every transaction; that’s huge,” says George Harrap, Co-founder and CEO at Bitspark. “With Bitspark, we split it 50/50 so the money transfer shops make more than double what they do currently – they now can actually reduce their prices and still earn more money than usual and have access to more pickup providers at the other end, handled by our partners, such as Rebit.”

Rebit, a Bitcoin liquidity provider, is one of the three companies that Bitspark uses at this stage of the transaction. Customers are never advertised or told that a digital currency is being used to make their transaction faster and cheaper.

“Our users don’t need to know anything about Bitcoin and we don’t mention it all. There is no need,” says Harrap. “People who want to send money, want to send money; they don’t care about Bitcoin or how it gets there. We handle all the Bitcoin stuff in the backend and all the user handles is cash, as they normally do anyway.”

Users may not know they are transacting in Bitcoins, but they’ll certainly know the prices have drastically dropped. “We generally charge a 1 percent commission. This is in contrast to fees ranging from 2.5 percent to 10 percent depending on what day it is, and where in Hong Kong you are,” says Harrap.

From this stage, a company on the receiving end of the corridor picks up the baton, in this case, SCI. “They [a partner such as Bitspark] would then send the corresponding Bitcoin amount to us,” says Bailon, “and we would pay out in pesos to the recipient and via whatever payout option the sender choses.” This can include bank deposits or cash pickups at partnered providers, such as Cebuana Lhuillier, a popular Philippine remittance service and pawn shop.

SCI, which gets its name from Satoshi Nakamoto, the mysterious creator of Bitcoin, was recently funded $100,000 in seed capital; the company is proving a potent bellwether for the industry. Yet, while the remitter under this system absorbs no risk using Bitcoin, the remittance service providers still have to prepare for market shocks, such as those that the global bourses have experienced over the past week.

“Just like a forex business or commodity trading business, [SCI] faces risks when markets crash and move rapidly,” says Miguel Cuneta, Co-founder and CCO at SCI.

“We have learned to manage our risk well enough to earn revenue amidst the volatility of the price of Bitcoin. Running a Bitcoin business is not for the faint of heart.”